Labour sublease under Vietnamese law

Update:
November, 09/2016 - 10:44

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A company may wish to use some staff of another company, especially when they belong to the same group. What form of Labour exchange is recognized by Vietnamese law? This practical note tries to provide an answer to the question.

Bui Duc Giang, Ph.D, Attorney at Law

A company may wish to use some staff of another company, especially when both companies belong to the same group. What are the forms of labour exchanges recognized by Vietnamese law? To answer this question, this practical note provides an overview of the relevant legal provisions.

As a matter of principle, under Article 18 of the Labour Code, before accepting an employee to work for it, an employer and the employee must enter directly into a Labour contract. A Labour contract means an agreement between an employee and an employer on a paid job, on working conditions, and on the rights and obligations of each party to the Labour relationship.

The only exception to this principle is a Labour sublease scheme whereby a company may use staff of another company. Under Clause 1, Article 53 of the Labour Code, Labour sublease means the scheme under which an employee recruited by a company licensed to carry out the Labour sublease (the staffing company) shortly thereafter works for another company (the subleasing company), and is immediately subject to management by such other company but maintains the Labour relationship with the first company.

Clause 2, Article 53 of the Labour Code further indicates that Labour sublease is a business subject to conditions and may only be carried out in respect of a number of specified jobs. Clause 1, Article 25 of Decree No 55/2013/ND-CP dated May 22, 2013, on Labour sublease, as amended in 2014 (Decree 55) provides a list of jobs for which Labour sublease is permitted.

Legal requirements: Article 54 of the Labour Code requires the staffing company to pay an escrow and be licensed to carry out Labour sublease activity. The escrow amount must be VND2 billion (Clause 1, Article 5 of Decree 55) and shall be deposited at a commercial bank where the staffing company has opened its main current account (Clause 1, Article 16 of Decree 55) to secure the staffing company’s obligation to pay wages to subleased employees or to pay compensation to subleased employees in case it breaches the Labour contract already signed with such employees or if it causes damage by its failure to ensure the legitimate rights and interests of its subleased employees (Article 15 of Decree 55).

Furthermore, under Clause 2, Article 5 and Clause 1, Article 6 of Decree 55, the staffing company must maintain a charter capital of at least VND2 billion throughout its term of operation. The Minister of Labour, War Invalids and Social Affairs has the authority to grant Labour sublease licenses which are valid for a maximum period of 36 months (Articles 12 and 13 of Decree 55).

Under Article 55 of the Labour Code, the staffing company and subleasing company are required to enter into a Labour sublease contract made in two written copies, with each party holding one copy, and such contract must have the following principal details: Workplace, and the job which requires a subleased employee; description of the job, and specific requirements on the subleased employee; term of the labour sublease, date of commencement of work by the employee; working hours, rest breaks, and conditions on occupational safety and hygiene at the workplace; and obligations of each party toward the employee.

It is also prescribed that a Labour sublease contract must not contain provisions on the rights and interests of the employee which are less favourable than those provided in the Labour contract which the staffing company has signed with the employee concerned. The consent of the employee to be subleased is required for the validity of the labour sublease contract and the staffing company may not collect any fee from the subleased employee (Point c, Clause 1, Article 4 of Decree 55).

With regard to sublease term, under Clause 2, Article 54 of the Labour Code, the term of any Labour sublease must not exceed 12 months. Upon the expiration of the term, the staffing company may not continue to sublease such subleased employee to the subleasing company (Clause 2, Article 26 of Decree 55).

For a staffing company established as a joint-venture between an overseas company and a local company, Clause 3, Article 6 of Decree 55 imposes the following conditions on the overseas company: It must be a company specializing in the business of Labour sublease, with a capital and total asset value of at least VND10 billion; It must have at least five years’ experience in providing Labour sublease services; and itt must have a certificate granted by an authority in its home country proving that it and the representative of its contributed capital portion in the joint venture have not breached the law of the country of origin or the law of the related country.

Article 56 of the Labour Code imposes various obligations on the staffing company, including paying compulsory social insurance, health insurance and unemployment insurance premiums in favor of the subleased employee as well as giving notice of contents of the Labour sublease contract to the subleased employee.

Pursuant to Clause 4, Article 57 of the Labour Code, the subleasing company may not supply the subleased employee to other companies. It is noteworthy that the subleased employee may enter directly into a Labour contract with the subleasing company once he has terminated his Labour contract with the staffing company (Clause 6, Article 58 of the Labour Code).

Labour sublease between ordinary companies: In practice, companies, especially those belonging to a same group, may wish to exchange employees with one another in order to save labour costs. Is such staff exchange lawful? In light of the above-mentioned legal provisions, a company which has not registered sublease as its business line and has not obtained a Labour sublease license may not sublease its employees to another company.

Is it possible for a company to lend some staff to another company without collecting any fee or financial consideration for doing so? Obviously, as this kind of agreement doesn’t generate any income in favor of the lending company, one may argue that it would not qualify as a business line (requiring registration) and the parties would avoid the regulated restrictions stated above. However, this scheme is not lawful as well since as mentioned above, Labour sublease remains the only way a company may use staff of another company.

Under Clause 1, Articles 3 and Clause 5, Article 9 of Decree No. 95/2013/ND-CP dated August 22, 2013, on administrative sanctions in the fields of Labour, social insurance and overseas manpower supply, as amended in 2015, a fine of between VND100 million and VND150 million will be imposed on a company which subleases Labour without having been granted a Labour sublease license. It should also be noted that intra-group Labour sublease is prohibited (Point e, Clause 1, Article 4 of Decree 55). Failure to comply with this prohibition will result in a fine of between VND80 million and VND100 million (Point d, Clause 6, Article 9 of Decree 55).

What are the alternatives?

Article 21 of the Labour Code allows an employee to sign Labour contracts with more than one employer at the same time. However, this alternative is beneficial exclusively to the employee at stake and the second employer will have to pay him a salary (because as mentioned above, a Labour contract implies necessarily payment of a specific salary). Nevertheless, the companies concerned may limit their pay in the following ways: The second employer pays the employee a symbolic salary which must however be equal at least to the law-prescribed minimum salary.

If they belong to the same group, another alternative consists in deducting part of the employee’ salary with the first employer which will then be used to pay the employee’ salary with the second employer, which results in no further financial charge for the group. Please note that this requires the employee’s consent.

Point a, Clause 1, Article 4 of Decree No. 44/2013/ND-CP dated May 10, 2013, on Labour contracts (Decree 44) provides for the payment of insurance premiums when a worker signs Labour contracts with multiple employers and the employee and employers are eligible for subscribing compulsory social insurance and unemployment insurance as follows: The employee and employer signing the first Labour contract have to pay social insurance and unemployment insurance premiums; and, the employers of the subsequent Labour contracts have to pay, at the same time as the date of payment of salaries to the employee, an amount corresponding to the amount of social insurance and unemployment insurance premiums prescribed by law as payable by employers.

Likewise, with regard to health insurance coverage, Point a, Clause 2, Article 4 of Decree 44 states: The employee and employer of the Labour contract with the highest salary have to pay compulsory health insurance premium; and, the employers of the subsequent Labour contracts have to pay, at the same time as the date of payment of salaries to the employee, an amount corresponding to the amount of health insurance premium prescribed by the law on health insurance as payable by employers. -- VNS